The partial holiday Monday saw the ASX rebound from Friday’s 2% near panic selloff to close 1.3% higher and, for that, investors can thank the old faithful – the big four banks, led by the Commonwealth.
The ASX 200 jumped 1.7% after a moderate finish on Friday night for the futures market and held those gains to close 93 points higher at 7,278.5 points.
That left 0.7% of Friday’s slump still on the table, but without the CBA ending its $6 billion share buyback and bouncing higher as a result, and dragging the shares of peers, NAB, Westpac and ANZ, without, the market would have been hard pressed to hold onto any gains.
The market will be watching today’s monthly monetary policy meeting of the Reserve Bank, but do not expect any changes (although there could be a hint about the timing of tighter regulation of housing loans)
News of the end to the Commonwealth off-market share buy lifted the financial sector and set the positive tone for the day.
CBA shares were up as much as 5.6% to $105.63, before closing at $105.16 for a gain of 4.6% for the session. Westpac shares rose 2.1%, NAB was up 1.9% and ANZ gained 2.2%.
The CBA buyback was heavily oversubscribed by about $18 billion, as retail shareholders and larger investors sought to cash in on the bank’s return of capital and franking credits.
The bank pointed to strong demand as it announced the outcome of its massive buyback, which resulted in about $24 billion being offered to be bought back, prompting the bank to scale back investors.
This will reduce the number of CBA shares on the market by 67.7 million, or about 3.8%. Those shares will soon be cancelled. The buyback will cut the bank’s core capital by 1.33% but that will still be well above the regulatory minimum of 10.5%.
CBA, which has a large retail shareholder cohort, bought back the first 100 shares investor sought to sell into the buyback. However, applications for more shares than this to be bought back were scaled back by 79.4% meaning shareholders had only about a fifth of the shares they offered bought back.
It bought the stock back at $88.62 a share, representing a discount of 14% to the average price of CBA shares over the five days to last Friday, when the offer closed.
The price included a capital component of $21.66 and a fully-franked $66.96 dividend, which is why it was so attractive to shareholders (All those franking credits, tax free).
No other company listed on the ASX could have single handedly had the same impact as the CBA did yesterday. The low trading volmes helped magnify the impact of the success of the CBA’s buyback.
